Duties of POAs, Conservators and Trustees in Reverse Mortgage Transactions
The Borrower is the individual that must qualify under the rules for Reverse Mortgages. That senior (62 or older) or their duly appointed representative under a POA or Conservatorship is the person who must execute the Application and Closing documents. A Conservator must petition the Court for authorization to enter into a Reverse Mortgage and can thereby act accordingly.
A Power of Attorney (POA) document must be notarized and ultimately recorded with the County to be effective in a Reverse Mortgage transaction in that it deals with Real Estate. The POA document must also meet the Lender’s and Title Company’s guidelines. To avoid a question of the Borrower’s capacity at the time of executing the POA it is advisable to consult with the Borrower’s physician near the time of the execution of the POA to be able to demonstrate that the borrower had capacity at that time. The physician could provide a letter acknowledging the borrower’s capacity at that time or note such capacity in the borrower’s medical record so as to allow a recollection of such capacity if called upon to do so at a later date. As long as a Borrower is competent. he/she must sign the required documents although a witnessed mark will suffice.
If the Borrower would find the signing of numerous documents to be a burden, a POA could sign most of the documents on the Borrower’s behalf at both the Application and Closing. The Borrower still must sign the following for the Application; 1009, HUD Addendum, Counseling Certificate, Letter Explaining POA signing, Principal’s POA Affidavit (to be notarized). At the final document signing at Closing, the Borrower must sign the Note, Trust Deed (signed by the Trustee if the property is held in Trust) and the Notice of Right to Cancel. When the Borrower is incompetent. the POA or Conservator must sign on his /her behalf. A POA appointed to act on behalf of the Borrower as an individual may conduct transactions on behalf of the Borrower. Incompetency must be established in accordance with the provisions of the applicable document, i.e., Durable Power of Attorney and Trust, if applicable. This usually takes the form of one or more letters by a medical doctor.
Once the Borrower is declared incompetent, he/she cannot appoint a new POA. A valid, existing POA that was appointed while the Borrower was competent will be acceptable if it meets the Lender’s and Tile Company’s guidelines. If a Borrower does not have a POA in place to act on her behalf, and he/she is mentally incapacitated, the courts will have to intervene to appoint a Conservator to act on his/her behalf. If a Conservator is appointed, a PVP may also be appointed by the Court. A Trustee can only act on behalf of the Trust. The Trust cannot be a Borrower; therefore the Trustee cannot conduct loan transactions on behalf of the Borrower. (Section 4235.1 HECM handbook, section 4-SA, item 3, says: The Trust shall not be party to the loan agreement.) The Trustee’s only role in the transaction is to sign for the Trust so as to encumber the Trust’s property. The Trustee usually signs only the Trust Deed and Note, and the Notice of Right to Cancel at Closing although some Lenders are beginning to expand the documents that a Trustee must sign.